Powell Holds Line on Rates, Cites Tariff-Driven Inflation Risks

Federal Reserve Chair Jerome Powell made clear on Tuesday that interest rate cuts are not imminent, warning lawmakers that upcoming tariff impacts could raise inflation this summer. Speaking before the House Financial Services Committee, Powell emphasized that the Fed will remain cautious as it evaluates the economic fallout from President Donald Trump’s trade policies.

“I don’t think we need to be in any rush,” Powell said, downplaying the likelihood of a July rate cut. “If inflation pressures remain contained, we will cut rates sooner. If not, we’ll hold steady.”

Powell’s remarks signaled a wait-and-see approach by the central bank, despite political pressure. President Trump has publicly urged the Fed to slash rates aggressively, claiming it would strengthen the economy. But Powell and his colleagues argue that uncertainty surrounding trade and tariffs necessitates patience.

Inflation May Rise by Summer

The Fed expects that tariffs will begin pushing prices higher in the June and July inflation readings. Powell noted the central bank is open to adjusting its forecast if the impact proves smaller than anticipated.

“All professional forecasters I know expect a meaningful increase in inflation this year,” Powell said, underlining the Fed’s caution. “We’re not commenting on tariffs, we’re responding to inflation.”

Fed officials last week voted unanimously to keep interest rates steady at 4.25% to 4.50%, consistent with Powell’s congressional remarks. Their latest projections suggest two rate cuts may still happen later this year, likely beginning in September, if inflation moderates.

Markets React Cautiously

Following Powell’s testimony, investors scaled back expectations for a July rate cut, instead favoring September as the more likely turning point. Market sentiment remains split, with some Fed governors, both appointed by Trump, hinting that a cut could still be justified sooner due to currently stable inflation.

Still, three regional Fed presidents voiced concern that inflation could intensify as trade policies evolve.

As the political battle heats up, Trump criticized Powell on social media, saying the Fed should be “two to three points lower” and referring to Powell as a “dumb, hardheaded person.”

Despite pressure, Powell reiterated that the Fed’s role is to maintain price stability and economic balance, not to react to political rhetoric.